Posts Tagged ‘Ashlea Ebeling’

Bitcoins may act like money, but IRS says they aren’t. The IRS yesterday announced how that it will treat Bitcoin “virtual currency” as property, rather than currency, for tax purposes. Notice 2014-21 lays out the IRS treatment of Bitcoin and similar virtual money. Some key points:

- As property, gains and losses on Bitcoin are normally capital gains and losses, unless the taxpayer is a dealer in Bitcoins. That means losses are limited to capital gains plus $3,000 for individuals. This contrasts with currency transactions, which normally generate ordinary income and loss under Section 988.

If the fair market value of property received in exchange for virtual currency exceeds the taxpayer’s adjusted basis of the virtual currency, the taxpayer has taxable gain. The taxpayer has a loss if the fair market value of the property received is less than the adjusted basis of the virtual currency.

That makes using Bitcoins a hassle for taxpayers who try to follow the law. Everytime you buy something with Bitcoin, you will have a capital gain or loss, depending on fluctuations in the Bitcoin market. Imagine if you had to record a little capital gain or loss based on the currency markets anytime you bought anything with cash. If you use Bitcoins every day you’ll have a horrifying Form 8949 to report all of your gains and losses.

– The basis in virtual currency is its value on date of receipt, if you acquire it in a transaction. That same value is the amount you use to compute income if you are paid in virtual currency

– They point out the obvious: “A taxpayer who receives virtual currency as payment for goods or services must, in computing gross income, include the fair market value of the virtual currency, measured in U.S. dollars, as of the date that the virtual currency was received.” Also, payments in virtual currency are subject to information reporting, same as cash.

– Virtual currency “miners” generate ordinary income. If they do it as a trade or business, it’s subject to self-employment tax.

What the Supreme Court decision means for employers is that what had long been the case –severance pay is subject to FICA tax—remains the case. And for employees who are laid off, it means that they will continue to get a little less in “take-home” severance because it’s dinged for their share of FICA tax.

It seemed like a reach to say otherwise, but now it’s not even that.

A hard-working fictional student.

O. Kay Henderson,Legislators ponder tax credit for student loan payments. A truly awful idea. This credit doesn’t encourage getting higher education; it encouragesborrowing to pay for higher education. As an unintended but obvious consequence, it discourages saving to pay for college — there’s no tax credit for foregoing current consumption to pay for college later. It’s stunning that lawmakers actually want to encourage more student debt when many students already are entering a brutal job market with crushing loan obligations.

I got some feedback on my previous post on Tax Reform and low Schedule F reporting of income. Several sources of farm income does not show up on a Schedule F. This includes many common sales of farm assets such as breeding stock and equipment. Most of the expenses associated with this income is deducted on Schedule F, however when these assets are sold, none of the gains appears on Schedule F. Rather, this income is usually reported on Form 4797.

That still doesn’t change the fact that these simple farmers play the cash method like a violin to achieve tax results other businesses can only dream of.

The modern American fiscal state is predicated on a bargain. During World War II, lawmakers were forced to expand the personal income tax to help pay for the fighting. Over the course of just a few years, they added millions of middle-class Americans to the tax rolls for the first time, transforming the income tax from a rich man’s burden to a middle-class millstone. In return, however, these same lawmakers offered the middle class an implicit (and sometimes nearly explicit) guarantee — rich people would be asked to pony up, too.

Cool story. Let’s see how that works nowadays:

Chart by Tax Foundation

So now the “rich” aren’t paying their “fair share,” they’re picking up most of the tab. How does it work if you break it down further?

So not only do “the rich” pay their share of the freight, they pay a lot more than their share of earnings. And when you take government benefits into account, the whole “fair share” argument is tough to support:

Chart by Tax Foundation

I don’t buy Joseph’s “social contract” thinking. The whole emphasis on inequality being peddled by the administration is a diversion, an attempt to change the subject from the manifest failures of Obamacare and foreign policy blundering. No matter how hard they hit “the rich,” or how bad doing so is for the overall economy, there is never a point where the politicians will say the rich are being hit enough.

To the extent “inequality” persists, it’s clearly not a direct function of the tax code or government spending. Politicians, though, find it useful to encourage the belief that they can spend on whatever pleases the crowd by just by making the rich pay their “fair share” — as if they weren’t already. It’s the flip side of the widespread belief that the government can just balance the budget by cutting foreign aid. It’s just an attempt to fool the gullible long enough to win another election.

The “Fiscal Cliff” negotiations seem to be heating up. The inane haggling over the final version of the inevitably awful tax law that we will have for this year and next year seems to have heated up a bit yesterday. Details are cloudy and could change, but here’s what it looks to me like they are talking about for taxes:

An increase of the top ordinary income tax rate to 39.6%, but at a level of $400,000 or higher; the President had been holding out for a $250,000 threshold.

Some stupid restriction in the tax benefits of itemized deductions — perhaps capping the value of the deductions at 28%.

An AMT patch retroactive to last year and extension of all of the “expiring provisions.”

The President’s most recent offer includes some surprisingly good tax policy in the midst of the general awfulness of the tax increase plans. From the Wall Street Journal:

On the tax side, the administration’s biggest proposal would permanently extend relief from the alternative minimum tax. That’s a provision designed decades ago to target the wealthiest Americans that now hits tens of millions of middle-class households, in part because it wasn’t indexed for inflation.

That would be great news. The politicians play with fire by temporarily increasing the AMT exemption every year or two as a cheap ploy to pretend they will receive additional AMT revenue after the temporary “patch” expires — allowing them to appear slightly less irresponsible.

Also:

The administration’s new proposal also would permanently extend a raft of temporary tax breaks that Congress has passed over the years, benefiting businesses as well as individuals. Notable examples include the research and experimentation credit for businesses, as well as the deduction for state and local sales tax for individuals.

While I would prefer just letting these expiring provisions expire, I’d rather they be made permanent than going through the charade of re-enacting them every year or two just to play stupid budget games.

IRS extends employee – independent contractor settlement program. The IRS yesterday announced (Announcement 2012-46) that it is extending its program to resolve the classification of workers as employees or independent contractors.